The costs of not building it right the first time is statistically staggering—some research suggests up to 20% of the total project costs. This article highlights the costs of re-work, provides a financial worksheet to track the costs of re-work, and a trusted tool to help reduce the impact of re-work.
Typically, when discussing rework, one thinks of the labor and material costs, but there are other costs associated with rework that are less easily quantified:
- Liquidated damages and related legal costs
- Potential for increasing safety incidents associated with rework
- Morale loss due to performing rework
- Loss of previously trained workers due to delays caused by rework
- Reputational loss and the inability to bid on future work
- Challenges of future work to be performed due to schedule delays on a current project
Research has identified that direct costs of rework range from 0.05% to 20% of contract value. Indirect costs are as high as six times the direct costs, but there are tools that can be used to educate contractors and evaluate projects on the costs of rework.
Rework Prevention
The American Institute of Architects’ contract language urges contractors to take reasonable precautions for safety and to promptly remedy damage and loss. In its 2023 contract documents, the AIA indicates that quality control is, “an indispensable aspect of construction contracts.” AIA also recommends that training and certification is a key component of quality control in construction contract). The challenge is how do contractors implement meaningful (trade-specific) quality control training for their crews.
Construction safety procedures have included toolbox talks as a method of communication, training and overall information sharing for many decades. These toolbox talks also serve as opportunities for team building, story sharing and proactively driving safety culture. Historically, quality control communications have occurred most often in leadership and project supervisory meetings and through procedural documentation. But if contractors direct quality control across their field teams and integrate weekly trade-specific quality training into an existing schedule—say in combination with weekly safety meetings—that would certainly help reduce rework losses, just as weekly safety meetings have been shown to reduce injury incidents.
Quality Control and Safety
A symbiotic relationship exists between quality and safety. Therefore, it is logical to implement a quality near-miss reporting system—similar to how one would file safety incident near-miss report. Often, contractors’ quality control programs are consistent with inspections requirements; however, the majority of contractor quality control programs should have a stronger focus on prevention.
Engaging craft workers improves project safety, reducing craft injuries and project costs. Contractors should follow this same model for their quality control program. The motto, “See something say something” that has been used in safety across several industries can easily be applied to quality control in construction. To ingrain an install-it-right-the-first-time philosophy, contractors should expand their quality control programs to include:
- The sharing of lessons learned with craft workers
- Installation errors, findings and costs
- Engagement of manufacturer’s representatives with craft workers to train and demonstrate correct installation procedures
Subcontractor Default
Subcontractors default for three primary reasons:
- Lack of labor, can’t maintain the schedule
- Financial insolvency
- Quality control problems.
Subcontractor default insurance claims are a low frequency and high severity type exposure according to River Steenson, the senior vice president of subcontractor default insurance at NFP, an Anon Company. Quality issues generate about 20% of all the cost to cure a sub default insurance claim. That represents a massive opportunity to reduce the size of a claim by just focusing on subcontractor’s quality.
Owners Pay
During an Oct. 30, 2024 presentation at the International Risk Management Institute Construction Risk Conference presenter Silas Nigam, president of S+B James Construction, was asked: “Will the owners pay?” in reference to the cost of onsite quality staff and additional related quality programs. Mr. Nigam’s response was: “They are not only paying for it, they are Contractually requiring it.”
Contractor Prequalification
The construction industry has historically measured contractor safety excellence through the benchmarking of Contractor’s EMR and OSHA Recordable Rates. Measuring excellence through the absence of events is a challenge and a poor measuring tool in evaluating a successful safety program. Safety prequalifications have advanced to evaluations of safety programs, safety plans, safety orientations, job hazard analysis and weekly safety meetings.
The same challenges exist with the evaluation of construction quality control programs, which commonly measure the lack of rework (or lack of rework claims). Best-in-class quality control programs mirror safety programs via their processes, policies and implementation. The challenge exists in the pre-qualification process of evaluating an on-paper quality control program to one that delivers a quality project to the owner.
The next step in the evaluation process of a contractor’s quality control program includes:
- In-depth pre-qualifying of contractor’s site-specific quality control program
- Site staffing
- Requiring weekly trade-specific quality craft meetings
Insurance Underwriting
As a co-presenter at the IRMI Conference, Travis Davis, SRVP at Alliant Insurance, stated: “We’re all familiar with the rapidly rising costs of construction claims; recently what is getting the most carrier attention are claims related to quality of work. Top construction underwriters often have authority to adjust liability premiums up to 40% based on a subjective evaluation of each company’s commitment to risk management. In my experience, the best path for a contractor to maximize this pricing advantage is to demonstrate a top-down commitment to quality and a bottom-up training program centered around frequent craft training on quality. This proven formula is exactly what has been successful for improving jobsite safety over the past several decades.”
Further Recommendations
- Proposals/Responses should request contractor’s site-specific quality control programs identifying prevention steps to reduce rework
- The prequalification process of subcontractors should have less emphasis on claims defense and more emphasis on prevention of rework
- Require contract language in contractors’ quality control programs to include weekly, trade-specific, craft-level quality training
Owners and Contractors both benefit from focused efforts on engaging the craft employees in quality control. This benefits budget, schedule and financial loss because skilled construction professionals strive to build it right the first time.SEE ALSO: ROBOTICS BOOST CONSTRUCTION EFFICIENCY
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